Prot margin represents a correlation between the revenue you generate and the expenses you incur. Everyone

aims to reach a high margin, however, many fail on half way. In this presentation, we'll analyze the main

mistakes while getting high margin and the key points that are considered as a lifeblood of cloud hosting

business based on the experience of service providers worldwide. The problems you face while running your

business are most likely the same within hosting community, so we compiled the best practices of your

competitors to help you increase the margins.

THE LIFEBLOOD OF HIGH MARGINin cloud hosting business

Agenda

Almost everyone who runs a business was thinking

how to make much more money and at the same

time spend less - this is exactly the topic of this book.

WHAT IS THE MARGIN

WHAT PROBLEMS LEAD TO LOW MARGIN

WHAT SOLUTIONS CAN HELP TO INCREASE MARGIN

What is a Margin

Margin is the difference between product or service price and

its cost of production

Actions inuencing the margin

Increase the price

Decrease production cost

1

2

ProductPrice

Margin

Production Cost

What is poisoning our businesses?

PROBLEMS

Commodity is a Core Problem of Low Margin

Even something that seemed unique some time ago, becomes commodity

VPS Amazon

As you can see, such big companies as Amazon and DigitalOcean offer VPS, but their offerings are very alike.

VPS Linode

Some vendors provide more resources for the same price. This makes the offer more attractive for end users,

but, at the same time, decreases the prot for hosters as in order to gain the same margin they should be more

effective in the production cost compared to the previous two companies.

Low Quality Products

Low quality products can be sold with high margin, but people will quickly realize that the price does not

correspond to the quality, and no marketing will help you with high churn.

Just imagine a situation that you invested signicant sum of money in a new product launch and an initial

marketing pack of this product, so leads are coming. But as usually, customers have questions and require an

appropriate support from your team to get started with offered solution or x some issues they faced during

the product usage. And if your team fails to deliver the expected quality of support, the customers will start to

churn, so as a result you may lose money w/o meaningful outcome.

Low Quality Support

Inadequate Pricing

That is why it is better to analyze pricing of your competitors,

prepare polls and gather feedback from real users, - all these

would help you to get closer to customers̀ expectations.

There are two main issues you should take into consideration while specifying the pricing:

Too high price frightens and signicantly narrows a number of potential customers

Too low price makes a customer suspect low quality and pushes away

Wrong Target Audience

It is a common problem, when providers try to reach everyone but no one in particular, or just

going with offering/messaging that is not suitable for particular market.

Lack of Automation

Lack of automation usually causes signicant delivery delays and human mistakes. It’s always quite stressful

and appears to be a bottleneck for the further scaling of your business. At the same time, ineffective

automation can bring even more mess into your business, as you will have to spend more internal resources for

the production and maintenance of your product.

What is the secret elixir?

SOLUTION

The First Step is to Admit That You Have a Problem

Find out what hidden barriers block your company from getting high revenue: prepare an internal business

analysis and discuss with your team how to change this situation for the better.

Value Inuences the Margin the Most

Сustomers make a choice and pay us money based on the value from our services and products. Value depends

on price and quality: it can be the quality of a product or customer services.

We highlighted customer service in red, as hosting service providers have total inuence on it compared to

other attributes of value and can change the situation drastically. Since price depends on the market situation

very much, you have limited boundaries. Also, the majority of hosting providers offer services based on the 3rd

party solution, so you can’t change it signicantly unless you have a strong R&D team. And quality of end

customer services can be used as a leverage for increasing the value of your products and, as a result, the

margin itself.

Value QuadrantValue quadrant can be a helpful tool to understand the company position on the market.

Selling low-quality product for a low price means offering commodity value to end customers

The situation can be even worse if you sell low quality products for a high price

Better variant for customers would be if you sell high quality products for a low price, however it does not maximize your margin/prot

The most preferable case is to offer a combination of high quality and unique decent solution, as customers are ready to pay more for such products

Decide Who You Want to Be a Hero to

Customers spend

10%50%

Money

Deciding on your target audience appears to be rather obvious task, but many hosting providers ignore it for

different reasons. According to 20/80 rule, 20% of customers brings 80% of revenue. From our observation,

about 10% of customers provides 50% of revenue. So it’s much more protable to target small/specic group of

customers than expanding your target audience as wide as possible.

Pricing FormationWhen we dened our target customers, it's high time to gure out what kind of pricing we can

offer and what margin can be expected. There are 3 types of pricing formation:

Each type has it’s own advantages and disadvantages, but in case you want to maximize the prot, consider the

value-based pricing as the most appropriate variant.

Value Based PriceThere are 4 major steps for dening value based pricing.

The main idea is to maximize the price without causing too big churn of potential customers.

Design Your Product

While designing the product focus on your strong side, taking into consideration such main vectors in hosting

industry as technology, support, expertise, and infrastructure. Dening your strong point will differentiate your

product from dozens of other solutions.

Technology unique in your market

Support services of high quality

Expertise in a specic area

Infrastructure reliability and high

performance

Technology Unique in Your Market

Unique solutions give more space for a high margin business: do not forget about commodity which remains

to be the core problem of low prot.

Elastic VPS

It’s not easy to change the more or less working business if selling the commodity product for a long time. But

be creative, as there always exist several options, that can make your product different.

For example, instead of common VPS, offer Elastic VPS with possibility of auto scaling and pay as you use

charging system. Scaling and clustering are very hard tasks for many customers who buy VPS, that is why

solving this problem will add signicant value to your offerings, being crucial decision-point for end customers.

Managed Docker Hosting

Docker adoption is growing, and there are still many undiscovered opportunities for hosting providers. We

believe that containers turn to be a massive shift in the cloud industry (as it already happened with IaaS in the

past). So do not miss this wave and the opportunity to monetize Container-as-a-Service(CaaS) in your local

market. Of course it may become a commodity sometime in the future as well, but these days containers

unleash boundless possibilities for a high margin businesses.

Solve One Specic Problem

Focus on a specic niche. Some providers already do this for well known applications like Magento or

WordPress. But there are lots of other apps and stacks that are still not that covered with managed services, so

analyse the needs of your local market and offer your expertise together with high performance of your

hosting.

High Quality Support

High quality support is a “must have” for a high margin business in hosting industry, otherwise customers will

not stay for a long time with you. If you are not able to provide a high quality support services for everyone,

then at least set the right expectations to you potential customers.

Support Level Examples (monthly price)

You can dene support tiers. In such a way, end customers will have a right perception of the value they get for

different price.

Social Proof

Be sure that the information about the level of support services spread out quickly via social media and forums.

And your hard work on improving communication with customers will pay back to you, as positive or negative

online reviews make a big impact on end customers decision. Due to BrightLocal research 84% of people trust

online reviews as much as a personal recommendation and 74% of consumers say that positive reviews make

them trust a local business more.

“72% of customers said that positive online reviews made them trust a company more, and 88%said that they trust online reviews as much as personal recommendations.”

BrightLocal Survey

Monetize Your Expertise with Extra Services

You can monetize your expertise by providing extra services based on experience of your team.

DevOps Automation

The vast majority of software development companies place a great emphasis on the process of continuous

integration and rapid delivery of new versions of their product. And when supplying enterprise-level projects,

such DevOps processes need to be automated as much as possible. These tasks can be not that trivial for

developers and also can move their focus from the core technology they develop. So many of them will

consider it more benecial to pay you for making it fast and with high quality than spending human and time

resources of in-house team.

Building Custom Application Architecture

Another signicant approach is to help your customers with complex architecture design.

Managing Virtual Private Cloud

Think about managing VPC or multi-cloud. These days customers do not like to be locked-in at one cloud

provider, and, at the same time, they are struggling with complexity of different infrastructure management.

But YOU know how to manage the infrastructure, as it’s a core expertise for majority of hosting service

providers.

Migration from VM to Containers

Customers are interested in migration from VMs to containers to be more efficient but decomposition of legacy

application can be a real blocker for them and this is where you can help if having the needed expertise. At the

same time, if you are going to offer your hosting services on top of containers, this will increase infrastructure

utilization and decrease TCO.

Infrastructure Reliability and High Performance

Be sure to think about your efficiency, about reliable and highly available underlying infrastructure where

customers run their applications and services.

Start Little but Strong. Grow Eventually

Buy or lease high performance hardware

For a high margin business it’s better to invest into a smaller but better and highly performed hardware. Later,

after you earn some money from this small infrastructure, you will be able to reinvest the margin into the

infrastructure expansion.

Multi-Region Availability

To differentiate you can offer several regions in different locations for bigger customers that are looking for a

highly reliable datacenters across continents.

Empower Your Infra

For TCO decrease:

Containers for high density

Hibernation of inactive applications

Automation of updates, monitoring and troubleshooting

Software-Dened Solutions

For Customers:

Backup by default!

Live migration for maintenance

without downtimes

Shift Your Mindset From Quantity to Quality

Always Evolve

Technology

Performance

Support

Managed services

Automation

Pricing competition

Always evolve! Everything becomes commodity if it gets traction from the market. Smart competitors do not

sleep. Do not relax for a long time even if your business brings you a high margin at the moment.

THANK YOU!Grow your business with

@Jelastic jelastic.com